One of the first steps in building a custom home is to find the right lender so that you can obtain financing. You must be careful when making this choice, as financing new construction is different than simply getting a mortgage. When building a new home, you have to get both a new home construction loan and a mortgage. This means, you actually need two lenders. But let’s start at the beginning with new home construction loans . . .
New Home Construction Loans
Tip #1: Find a banker who is experienced with home construction loans.
Because home construction loans have their own quirks, you need a bank that understands the process. Notice I said “bank.” You need to find a banker for your home construction loan, as mortgage companies do not offer this type of financing. But you need to find a banker who is experienced with construction loans. As we already stated, the home construction loan process has its own quirks. For example, “draws” must be made by your builder so that he/she has the money to construct your custom home. Some banks make this process seamless, allowing a smoother build. Other banks, however, can be quite difficult about the draw schedule, slowing the build considerably.
Tip #2: Find a banker who has a good working relationship with a mortgage lender.
Once your custom home is built, your construction loan must be turned into a mortgage. In other words, the banker loans you the money to build the house (the new home construction loan). Once constructed, the mortgage lender pays off the new home construction loan, giving you a mortgage to repay this debt. When the banker and the mortgage lender already have an established working relationship, this process is much smoother.
Tip #3: Ask your home builder for lender recommendations.
A trustworthy and reputable home builder will have established good working relationships with banks who handle new home construction loans. He/she will be able to give you a list of several banks to consider. As professionals in the home design and home building industry, we strongly encourage you to interview these recommended lenders. From our experience, choosing a lender who has previously worked with a home builder helps the process run more smoothly.
Tip #4: Do not base your decision on money.
Now, this may sound strange. I mean, you need a certain amount of money to build your custom home! What we mean by this tip is… Do not base your decision solely on the fact that a lender can save you a few hundred dollars in fees. When building a home, time is money. A lender that helps the home build process run smoother is worth much more than a few hundred bucks. Remember, you are investing time and emotion in a home build, too. You need professionals who value these elements, as well.
For more information…
For more information about new home construction loans and finding the right builder, check out the following articles…
- Construction Loan Financing: What is it?
- New Home Construction Jargon: Construction Loan Terminology
- How to Find the Right Lender
- How to Find & Buy Land: Step 1 – Obtain Financing